Sunday, September 16, 2007

Capital for Growth

Last week, I was one of four panelists at the CEO Forum hosted by Pacific Community Ventures (PCV). Capitalizing growth, or acquiring and managing the money to grow your business, was the focus of the discussion led by Mari Riddle of PCV.

In addition to myself, the other three panelists include Jeff Rice of First Regional Bank, Trevor Smith of Pacific Community Ventures and Michael Banner of Los Angeles LDC. The panel members were selected to offer insight into growth equity, bank debt, community development loan funds and asset based lending products.

So here are the highlights of last Wednesday's panel and breakout sessions on debt and equity.

When should a business seek capital? Before you need it! Start well in advance and establish a relationship with a potential funding source to best match your needs with the strengths and personality of the funding source.

A small business seeking capital should understand the different types of growth capital and how each can best meet their needs and objectives. When seeking debt capital, business owners should know whether their need is short term and best met by a revolving line of credit or longer term and a better fit with a term loan. The panel emphasized that term loans are best used to finance assets with a value to the business greater than a year.

It's all about cash flow. Whether a lender or investor, the funding source is more willing to provide growth capital when the business is generating cash flow - especially when the cash flow is primarily a result of operating earnings.

Never sell short the power of information. A key factor both lenders and investors will consider in providing capital is the ability of a business to provide timely and accurate financial reports. Plus, the more money you're seeking, the more important it is to have a higher level of financial reporting from a recognized CPA firm. In other words, if you're seeking more money, it's time to think about upgrading from simply providing tax statements or compiled financial statements.

Along that line, the panel was asked how best to prepare for a request for money. A small business owner can utilize the many free or low cost services available at the local small business development centers (SBDCs) or even SCORE. Also, check out some of my earlier postings, "What Will a Banker Ask Me?" and "Am I Bankworthy?".

Trevor Smith's breakout discussion, Introduction to Equity, was an excellent primer on the key issues a small business owner needs to consider when evaluating using equity rather than debt to grow a business. I can email you a copy if you leave a comment below requesting one. PCV is a double bottom line equity fund focusing on both a financial return and a social return when it makes an investment decision. PCV will drill down on the following related to lower income ("designated") employees in the company - headcount, average hourly wages, types of benefits provided to designated employees, whether or not designated employees are offered wealth building programs and types of training programs offered designated employees.

Finally, a comment on an exchange between myself and one of the attendees. Perhaps there was some confusion as to why an intermediary or broker such as myself was included on a panel of direct lenders and an equity investor. Mari Riddle of PCV summed it up best. The panel was selected to show the wide variety of funding solutions available and how all of these funding solutions work together to make sure that companies are best matched with the appropriate source of funds.

A broker, intermediary or investment banker plays a valuable role in the marketplace by making introductions, helping tell the story the right way and educating businesses of solutions that are not readily known. In this case, my role was to represent all of the asset based lending solutions such as p.o. financing, factoring, asset based revolvers and equipment leasing to name a few. To have representatives from each of those product areas, the panel would have had to included twice as many people!

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About Me

Marshall Lebovits has over 25 years of experience in the secured financing industry. Marshall advises on a wide variety of asset based funding solutions for businesses throughout the USA. If your business has receivables, inventory or equipment and needs over $50 thousand of financing, please contact me at 310-344-2522.